Petrobras Forecasts Hike in Production, Exports and Prices

Even with the forecasts of higher production and exports, government likely to increase of domestic fuel prices after October's elections.

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Despite continuing to set records for oil production in the past few months, net profits for Brazil’s giant oil conglomerate, Petrobras, plunged 25 percent, to R$10.3 billion in the first semester of 2014 in comparison to the same period last year.

Platform P-51 one of the many oil rigs Brazil counts on to obtain record oil production in 2014, photo courtesy of Petrobras/ABr.

In both June and July Petrobras registered production records in Brazil. “Our petroleum production in Brazil totaled in July an average of 2.049 million barrels per day (mbpd), surpassing by two percent June’s production, which was of 2.008 mbpd,” read a statement released by the company last week, which also showed the decline in net profits for the semester.

According to Petrobras the main reasons for the decrease in profits were provisions disbursed to those who adhered to the voluntary dismissal plan, lower gains with assets sales and higher write-offs of dry wells. Since January more than three thousand employees adhered to the voluntary dismissal plan. With the plan the company hopes to save nearly R$13 billion by 2018.

During a conference call on Monday to present the quarterly results, however, Almir Barbassa Petrobras’ CFO seemed confident about the coming months, “With the evolution of production our forecast is that already in 2015 we will have a positive net profit.”

According to the CFO, the company forecasts that annual petroleum production will increase by 7.5 percent in 2014 and exports will increase by 51 percent during the second semester, from the 166 mbpd registered in the first semester to 250 mbpd.

Petrobras CEO, Graça Foster calls for a convergence of domestic and international oil prices, photo by Antonio Cruz/Agencia Brasil.

For USP-FEA economics professor, Fernando Postali, the forecasts are very optimistic, “The potential growth is there but an increase in exports basically depend on a positive international scenario.” Petrobras forecast also calls for an increase by six percent in the production of oil derivatives during the second semester of 2014.

Even with the forecasts of higher production and exports, economists say that the government is likely to increase of domestic fuel prices. “I believe that after the [October General] elections the government will have to increase fuel prices,” says Professor Postali.

According to Postali one of the factors for the decline in net profits is low fuel prices in the domestic market. “There is a huge lag between domestic and international oil prices, and that hurts Petrobras’ financial accounts,” he says.

The professor’s analysis is in line with those of Petrobras executives. The company’s CEO, Graça Foster said last week, “parallel to the increases in production and the reduction of costs we seek a convergence of oil derivative prices in Brazil with international prices.”

The need for a hike in fuel prices until the end of the year was also expressed by Finance Minister, Guido Mantega. “Every year we adjust fuel prices […] that is the rule, said Mantega in an interview to Reuters last week.

According to a study conducted by the Grupo de Economia da Energia (Energy Savings Group) from UFRJ (Federal University of Rio de Janeiro), the difference between the domestic and international prices of oil derivatives (gasoline, diesel and liquid gas) between 2011 and 2013 made Petrobras ‘lose’ R$104 billion. Around ninety percent of all petroleum and natural gas produced in Brazil comes from oil fields operated by state-majority owned giant, Petrobras.

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